Asset price dynamics are taken to be accumulations of surprise jumps in the logarithm of prices. A Markov pure jump model is formulated on making variance gamma parameters deterministic functions of the price level. Estimation is done by matrix exponentiation of the transition rate matrix for a...

When firms access unbounded liability exposures and are granted limited liability, then an all equity firm holds a call option, whereby it receives a free option to put losses back to the taxpayers. We call this option the taxpayer put, where the strike is the negative of the level of reserve...

Loan spreads are analysed for two types of loans. The first takes losses at maturity only; the second one follows the formulation of CFOs (Collateralized Fund Obligations), with losses registered over the lifetime of the contract. In both cases, the implementation requires the choice of a...

Realized variance option and options on quadratic variation normalized to unit expectation are analyzed for the property of monotonicity in maturity for call options at a fixed strike. When this condition holds the risk neutral densities are said to be increasing in the convex order. For Lévy...

Strategies for selecting hedging measures that both respect certain market values of cash flows and yet maintain control on their distance from physical measures are advocated, proposed and implemented. The hedging criterion is the maximization of a conservative valuation of the hedged position....

We show that there are two distinct ways to make volatility stochastic that are differentiated by their consequences for skewness. Most models in the literature have adopted the relatively tractable methodology of using stochastic time changes to engineer stochastic volatility. Unfortunately,...

Acceptability pricing is formulated, for the dual problem, as a disciplined convex program solvable by the software CVXOPT. Forward starting options are used to illustrate the procedures for acceptability defined by positive expectation under the concave distortion minmaxvar. The measures used...

The problem studied is the pricing of options on the CBOE Skew index. The option pricing theory developed seeks to hedge the risk using positions in the market for options on a related asset and the option is then priced at the cost of this hedge. The theory is applied to pricing VIX options...

Demand and supply uncertainty lead to market models setting prices to levels of acceptable risk for excess supplies and net revenues. The result is a two price equilibrium. Equilibrium solutions applied to financial market data infer demand and supply elasticities and log normal volatilities....

Risk neutral variance term structures are characterized by their time elasticities. They are synthesized by space scaling and time changing self decomposable laws at unit time. Monotone time elasticities are modeled using exponential functions while gamma functions permit humps. Results for both...